A Frontier Economy For Adventurous MBAs

If extreme entrepreneurship were a sport, Paul Polak would be at the top of his game. From turning Somali entrepreneurs into millionaires (by in-country standards) with a lucrative donkey cart enterprise to creating a jet boat business for shipping cargo around Nepal’s whitewater rivers, the psychiatrist-turned-entrepreneur has dappled in a little bit of everything. These ventures led to arguably his zaniest idea yet: a handbook on how to target one of the last frontier markets left–the world’s poor.

Paul Polak is a serial entrepreneur and former psychiatrist

Polak has dedicated more than three decades to starting and running businesses that cater to consumers most businesses wouldn’t touch. He was an early standard bearer for the idea that market solutions, rather than aid or charity, offer the most effective way to tackle poverty. He’s also set out to convince entrepreneurs and investors that the 3 billion people at the bottom of the pyramid are, in fact, a worthwhile and lucrative market opportunity. But Polak is clear that the work won’t be easy, and there are plenty of risks involved. Those obstacles serve as the impetus behind his latest book, The Business Solution to Poverty: Designing Products and Services for Three Billion New Customers.

Polak and co-author Mal Warwick, an entrepreneur and impact investor, pull from their vast collective experience to offer a road map for entrepreneurs, investors and corporate executives to ethically and effectively help the world’s poor and make a handsome profit to boot. Polack is convinced that the premise isn’t too good to be true. He contends that a growing movement in favor of enterprises that serve the greater good is pushing aside business as unusual. In a wide-ranging interview with Poets&Quants, Polak discusses everything from whether B-schools are buying into the idea of social enterprise to what he learned from his most spectacular failure.

What prompted you to write the book?

My first book, Out of Poverty: What Works When Traditional Approaches Fail, mostly focused on what we learned with an organization called International Development Enterprises (IDE), which I ran for 25 years. We helped something like 20 million 1-acre farmers who lived on less than $1 per day increase their net annual income enough to move out of poverty. While that was a satisfying accomplishment, when you look at in the context of the size of problem–that there are 2.7 billion people who live on less than $2 per day–it ends up being just a drop in a bucket. I handed over IDE to my successor, and I’ve been focused on addressing what I consider to be the biggest challenge facing development: reaching meaningful scale. For the past four years I’ve been starting, incubating, and implementing a new breed of frontier multinational, which, if successful, is capable of transforming poverty and transforming business as usual.

With my partners, I am in various stages of creating four of those multinationals, each one is designed to transform the livelihoods of 100 million customers who live on $2 per day or less, generate $10 billion in revenues, and earn attractive enough profits to bring in commercial investment rather than charitable donations. My new book basically describes how to do that. It goes through the steps of how to design products and services with a radical degree of affordability, how to do last -mile distribution, how to design for scale from the beginning, and how to address other key challenges.

In The Business Solution to Poverty, you set high standards for entrepreneurs: finding a problem that affects at least 1 billion people, designing a solution with universal appeal, and creating something with radical affordability. What’s the return on investment for all this time and effort?

Well, I think this follows the rules of economics for frontier markets. Frontier markets are higher risk, but if the company is successful, the entrepreneur should get higher rewards. It’s very straightforward: These are virgin markets, so when you pioneer in a virgin market, you should, if successful, earn a very high degree of return.

From the position of somebody graduating from business school there are several options: He or she can seek a job in an existing company, which is in an existing and usually mature market. Or they can create a new company in a mature market by carving out a niche that’s unexploited. The downside to that is very brisk competition, but if you make it, you’ve got an infrastructure you can rely on. On the other hand, if you try to create a whole new market, you’ve got much bigger risks. But you’ve got the same kind of rewards that Sony got when they created the market for transistor radios, or that Apple got, at least initially, with personal computers, or that Ford had when he created a affordable motor car for the working man.